What are the needs of foreign capital in underdeveloped countries like India?

What are the needs of foreign capital in a developing country like India?

Foreign capital is needed to fill the gap between the targeted foreign exchange requirements and those derived from net export earnings plus net public foreign aid.

Why do underdeveloped countries need foreign capital?

The underdeveloped countries are generally designated as ‘capital poor’ or ‘low-saving and low-investing economies. The rate of domestic savings in these countries is highly inadequate to meet the requirement of their economic development. … Hence foreign aid capital is indispensable for economically backward areas.

Why is foreign capital important for India?

Apart from being a critical driver of economic growth, Foreign Direct Investment (FDI) has been a major non-debt financial resource for the economic development of India. Foreign companies invest in India to take advantage of relatively lower wages, special investment privileges like tax exemptions, etc.

Why is foreign capital important for India’s economic development?

The capital inflow of foreign investors allows strengthening infrastructure, increasing productivity and creating employment opportunities in India. … As a result, it provides a more favourable economic environment for the development of Indian economy.

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What is need of foreign capital?

Foreign capital is needed to fill the gap between the targeted foreign exchange requirements and those derived from net export earnings plus net public foreign aid. This is generally called the foreign exchange or trade gap.

Why is foreign capital important?

Foreign capital not only provides an addition to the domestic savings the resources, but also an addition to the productive assets of the country. The country gets foreign exchange through FDI. It helps to increase the investment level and thereby income and employment in the recipient country.

How is FDI beneficial to India?

Thus, FDI benefits consumers by reducing prices of goods and services in the long run. With addition of a foreign player in the market, each company strives to do its best, thus increasing the healthy competition in market and in turn benefitting the customer.

What is the main source of foreign capital in India?

Data for 2019-2020 indicates that services sector attracted the highest FDI equity inflow of US$7.85 billion, followed by computer software and hardware at US$7.67 billion, telecommunications sector at US$4.44 billion, and trading at US$4.57 billion.

What are the disadvantages of foreign capital?

8 Major Disadvantages of Private Foreign Capital

  • Distort of the Pattern of Development of the Economy: …
  • Adverse Effect on Domestic Savings: …
  • Adverse Effect on Balance of Payments of the Recipient Country: …
  • Not Useful on Political Grounds: …
  • Limited Coverage: …
  • More Dependence: …
  • Restrictive Conditions:

What are the advantages of foreign investment?

There are many ways in which FDI benefits the recipient nation:

  • Increased Employment and Economic Growth. …
  • Human Resource Development. …
  • 3. Development of Backward Areas. …
  • Provision of Finance & Technology. …
  • Increase in Exports. …
  • Exchange Rate Stability. …
  • Stimulation of Economic Development. …
  • Improved Capital Flow.
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